The poorest have lost most from tax and benefits changes, finds report

27th January 2015

Young families and poor households have borne the brunt of the Government’s tax and benefits changes, a new report suggests.

The research from the London School of Economics, Manchester and York universities claims that poverty will get worse over the next five years.

John Hills, co-author of the report and director of the Centre for the Analysis of Social Exclusion at LSE said that the Government had not made good on its promise that those on the lowest incomes would be protected from the cuts with most of the burden being carried by the wealthy.

He said: “While people at the bottom were initially protected with the way benefits were adjusted for inflation, that has not been the case for the last two years,” he said.

The report found that families with children under five have been the hardest hit by tax and welfare changes, but the Government responded that the richest have lost the most.

Reforms that have hit young families badly include the scrapping of baby tax credit for households with a child under one.

The £26,000 cap on total benefits a household can receive and changes to tax credit thresholds have also adversely affected poorer households.

Government cuts have also had an impact on children as the report found that real spending per child on early education, childcare and Sure Start services fell by a quarter between 2009-10 and 2012-13.

The report said that it was “short-sighted” for family income to take the biggest hit as studies show this has a significant impact on child development. It estimates that some families may have lost out on around £1200 in their baby’s first year.

The Treasury responded that: “The richest have lost the most from the government’s changes to taxes and welfare.”

It said the report did not reflect improvements to vital public services on which many poor and vulnerable families rely.

It highlighted the freeze on fuel duty and council tax, the provision of free school meals and tax-free childcare, and the increase in the tax-free personal allowance.

John Hills from the LSE said it was true that people with incomes above £100,000 had lost out more than the average, but considering losses as a proportion of income, the poorest have been worst hit.

The Institute for Fiscal Studies reported last week that coalition changes to tax and benefits have cost the average UK household £489 a year with low-income working-age households hit hardest.